Return of the NFOs

There is a distinct trend that emerges in rising markets—companies come up with their initial public offers (IPOs) and mutual funds follow suit with new fund offerings. If one goes by the trends of 2016-17, 29 NFOs were launched mopping up Rs 4,220 crore. The majority of these launches happened in the second half of the year, despite the lower commissions paid to distributors on NFOs. The changed regime that focused on trail-based commission model had halted new fund offerings a few years ago. Moreover, SEBI had directed mutual fund companies to rationalise their offerings by merging schemes with similar orientation.

Sensing opportunities in a rising market, several old as well as new AMCs are taking advantage of the UTI, Axis, HDFC, Birla Sun Life and Sundaram from the old brigade besides new entities like Mahindra, all of which have launched products to attract new investors who still believe in the Rs 10 NFO to be a better investment option over the higher NAV of existing funds with a performance history and track record.

Most AMCs launching new funds do so to fill the gaps in their existing product suit to make up for missing elements, while new entities have no choice but to expand their product offerings. For instance, BNP Paribas launched a balanced fund, while IDBI launched a midcap fund. AMCs also cashed in on the prospect of launching closed-end schemes, by introducing new tranches to existing funds. Axis Emerging Opportunities fund - Series 2, UTI Long Term Advantage Fund - Series V, Birla Sun Life Resurgent India Fund - Series 3 and HDFC Charity Fund for Cancer Cure - 1 being some of the closed-end schemes.

Seasoned investors would know the importance of investing in existing fund schemes, which is also visible with the rising inflows, especially through the SIP route in equity mutual funds. But, the case to invest in a new fund exists when the new offering has a unique or differentiating investment objective that one could use as a tactical move to gain from. The total inflow in equity schemes in 2016-17 was a little over Rs 70,000 crore.This can be taken as a proof that it pays to stay invested in schemes with a proven track record and performance history, than blindly going for NFOs.